Medicare and Other People�s Money

| 2 Comments | 1 TrackBack

The new Medicare plan from the Bush administration has been under a lot of heat from political opponents of the President, assorted pundits, and some elderly folk too. I forget who said the following quote, but I think it�s applicable to this situation: �You spend your money on yourself very carefully. You spend someone else�s money on yourself less carefully. You spend other people�s money on other people even less carefully.� It�s a remarkably profound statement about bearing the costs of certain actions. Assume I spent my money on a poor purchase, say a real lemon of a stereo system. When it breaks as soon as I turn it on, I bear all the costs; I�m out the price of the stereo and I didn�t get the utility from it that I expected to get. On the other hand, if I had used a charitable donation from my grandma to buy lemon stereos for the local breakdancing club (i.e. spending other people�s money on other people), I am basically liberated from all costs (except 1. the time and effort spent making the purchase and 2. and the disutility resulting from them not being my breakdancing club friends anymore).

President Bush is essentially spending other people�s money on other people with his new Medicare plan. To be fair, any time a President proposes big spending measures, the money isn�t his except for the tiny percentage of the spending that comes from his taxes. Nor will he be the primary beneficiary of the policy. If President Bush needed Medicare the way some elderly Americans do, I suspect that his policy would be different. I can�t say if it would better or worse, just different.

So I�m not surprised that critics say he is spending our money carelessly. The �rules of the game� give American Presidents very small incentives to be cautious with our tax dollars; those who voted for him in 2000 will likely do so again and those who didn't, probably will vote for someone else. Even if Bush wanted to spend our money as carefully as we would, it would be impossible for him to gauge and aggregate our preferences as accurately as the pricing mechanism of a free market. So while many disillusioned Americans point out the self-centered nature of politicians in regards to reelection, I find it interesting that many of the same Americans expect someone else to spend their money on them as carefully as they would spend it on themselves. And just for the record, I seriously doubt Bush or Cheney will be applying for Medicare come age 65.

1 TrackBack

Bob Dudley at Truck and Barter has noted, in the case of Medicare, that you just don't spend it as wisely as your own. There is a similar situation with E-rate computer purchases by schools. From the New York Times:... Read More

2 Comments

I'm sure Kerry won't either. Not to mention many (most?) members of Congress.

I don't know if he originated the quote, but I associate it with Milton Friedman, sho has used it in the past.

As far as the Medicare debate goes, I usually discount statements by politicians who accuse government of careless spending, yet advocate massive spending of their own. It's inconceivable that a Democrat-proposed solution would cost less. Their main gripe is the private sector role. Medicare to date has been much more about cost shifting than about cost control.

Pages

Powered by Movable Type 5.02

About this Entry

This page contains a single entry by published on May 25, 2004 1:27 PM.

Fake Money, Real Incentives was the previous entry in this blog.

Is it really that important to graduate? is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.